The 6-week losing streak has come to an end…barely! The Dow Jones and S&P 500 were positive for the week for the first time since April. With summer temperatures rising, it is safe to say the economy is slowing and the markets have as well. To add heat to the simmering market and global economy we have, Greece is crawling closer to a catastrophe. Bailout or not, Greece poses a very serious risk to global markets. Like dominos, global bond markets could fall one by one due to their interconnectedness. This is exactly why the European Central Bank (ECB) is so desperate to help Greece. The fear is that Greece is beyond saving and the efforts now are only delaying the inevitable. Because of all the uncertainty in the markets, should you consider moving your money into bonds?
The reality is that with rock bottom interest rates, there is nowhere for rates to go but up. When rates rise, almost all bonds will go down. When the market is scary, investors will pull back to bonds for safety; however, in this environment, bonds are one of the scariest places as the world is awash with debts that cannot be repaid. Remember bonds are by definition debts owed. Also remember that the US is technically bankrupt, half of Europe is bankrupt, and Japan is no different. If we look at municipal bonds in the US, the story is the same on the solvency front. This leaves the option of corporate bonds that have some appeal, but again, rising rates will crush these bonds as well. Floating rate bond funds remain an option because of their defense against raising interest rates, but where else can investors look to put their money?
If you’re a frequent reader of my market commentary, this will be no surprise to you – Precious Metals. It is not only logical, but downright obvious, that gold and silver, which have been money and stores of value for centuries, would thrive in the global debt and currency problems we are having. The reality is both gold and silver are under their inflation-adjusted all-time-highs from the 70’s and 80’s. How can that be considering demand is surging, and the debts are growing? I think two quotes from none other than former Fed Chairman Alan Greenspan will answer this for us:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation